I might be an ageing dividend-yield investor these days, but the younger investor in me from years past still perks up when I see a 16-bagger growth share.
It’s Bushveld Minerals (LSE: BMN), whose share price has soared over just the past three years. And it’s been even higher, with the 21.5p share price (at the time of writing) less than half the peak of November 2018. You don’t need many of those in your investing career to end up with a very happy retirement. So what’s the story?
Vanadium
Bushveld, the top performing stock on the Alternative Investment Market (AIM) last year, has achieved its success through the metal vanadium — and the share price climb and retreat has coincided with a boom in the metal’s price followed by a slump. Along with other metals, vanadium a key ingredient in top-quality steels and, apparently, it’s also used in a new kind of battery that could have some big applications in the future.
That’s all good, but what’s Bushveld looking like as an investment right now? I’m always wary of a share price chart that shows a massive short-term rise followed by a slump. I’m not a great follower of charts, but this pattern is so often characteristic of what I think of as a bandwagon growth stock.
What happens is that a company, usually a small one, catches the eye of growth investors looking for the next multi-bagger. Often, it’s a new technology company and, although a miner clearly isn’t in that category itself, there’s surely a knock-on effect here from interest in these new vanadium flow batteries.
Bubble?
Initially, investors who understand the company see a potential bargain and buy in. And, if enough do it, the resulting share price rise gets noticed by other investors who, frankly, don’t understand things quite as well. It gets discussed in investing forums too — and whenever I check the most popular shares on the forums, it’s almost always small-cap growth shares.
People pile in, it turns into a bubble stock, and eventually reaches a peak when the flow of early buyers dries up. What triggers the subsequent crash (which almost always happens) can be anything, usually a piece of news that’s not glowingly positive.
But, although caution is necessary, just assuming we’re seeing yet another burst bubble can be a mistake, and overlooking the possibility of a genuinely good company whose shares are unfairly depressed can lose us an opportunity.
Profitable
In the case of Bushveld Minerals, it’s a company that only started turning in profits last year and, with the vanadium price having fallen, there’s an earnings drop forecast for this year. But even after that, the shares would be on a tempting P/E of 10.4 — and with a trebling in EPS predicted for 2020, that would drop to just 3.6.
Being dependent on the price of a single commodity, Bushveld Minerals is going to be risky, but I think it could do very well in the next few years. I won’t be buying any myself, but I might well have done when I was younger.